THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

WOLF BLITZER, CNN ANCHOR: And to our viewers, you're in THE SITUATION ROOM, where new pictures and information are arriving all the time. Standing by, CNN reporters across the United States and around the world to bring you today's top stories.

Happening now, enduring days of death, more devastation as Israel and Hezbollah ratchet up their fighting. Israeli soldiers take heavy losses in a Lebanese village that just yesterday Israel claimed to control. And Hezbollah keeps launching more rockets into Israel.

Hezbollah's leader vowing once again that the worst is yet to come. He's threatening to take the fight beyond northern Israel.

Can Hezbollah hit Israel's major population center? Is Tel Aviv nervous right now?

And it's coming up on 5:00 p.m. here in Washington -- excuse me, back in Washington, where the Iraqi prime minister is vowing Iraq will become the graveyard for terrorists.

American officials now say the violence is due to death squads, causing some to say they're in denial about an Iraqi civil war.

I'm Wolf Blitzer in Jerusalem, and you're in THE SITUATION ROOM.

Faltering diplomacy and new casualties on both sides as fighting rages in the Middle East. Israeli warplanes bombed a 10-story building in the southern Lebanese city of Tyre, reducing it to rubble and injuring 10 people. The attack came hours after hundreds of Americans and other foreigners fled the city by boat.

Meanwhile, Israeli officials report eight soldiers killed in the battle for control of the town of Bint Jbeil, a Hezbollah stronghold that Israel claimed it had captured yesterday. A ninth soldier also died in Southern Lebanon today.

And in Rome, international talks on the crisis have ended with no consensus. Sources say the sticking point was a cease-fire proposal pushed by Arab and European diplomats but opposed by the secretary of state, Condoleezza Rice.

CNN has correspondents stationed in every key location in this conflict. Among those joining us this hour, our senior national correspondent John Roberts -- he's in northern Israel -- our chief national correspondent, John King. He's in Rome.

But let's begin our coverage this hour with our senior international correspondent, Nic Robertson, in Beirut, where once again it was a hectic, very, very dangerous day -- Nic.

NIC ROBERTSON, CNN SR. INTERNATIONAL CORRESPONDENT: Well, Wolf, just in the last hour, we've heard Israeli jets flying low over this city, the lowest I've heard them in the last two weeks. But it was just -- just before sunset in the port city of Tyre where they struck, hitting a building, a 10-story building, reducing it to rubble. Local residents who rushed to the scene said there were only civilians in the building, it's not clear why it was targeted.

But what has been clear over the past few days is that Hezbollah has launched rockets from outside of Tyre, from outside of the city, but within residential areas, and that has bought strikes just on the outskirts of Tyre because Hezbollah has been firing those missiles. Also, the fighting has continued, the bombing continued in the south.

People streaming out of the -- out of the southern parts of Lebanon, trying to get further north. Indeed, many people had been seeking refuge in Tyre, in the center of the city, because it had been relatively fired recently. This is the first large strike in the center of Tyre in over a week.

In Beirut, however, today, no bombs falling here today -- Wolf.

BLITZER: Nic, is it a sense that the targets in southern Beirut, specifically, which is the home of a lot of Hezbollah, a lot of Lebanese Shia, is it a sense that the targets the Israelis wanted to strike there have now been hit, or what is another explanation, apparently, for this lull in airstrikes in Beirut?

ROBERTSON: Well, they could have run out of targets, Wolf. Certainly, the Israeli government has been under a lot of international pressure not to degrade the ability of the Lebanese government to govern and run the country.

Now, we know the Israeli Defense Forces have been targeting the Hezbollah leadership and their military structure. Right now, now they're pushing troops across the border. Most of that seems to be focused in the south.

We have seen them target -- occasionally target in the south of Beirut, and perhaps these targets of opportunity, perhaps all the Hezbollah buildings that they wanted to target, have been hit. But really isn't clear.

But it is bringing a sense to this city, at least a little more normality. Some of the neighborhoods here, particularly in the sort of more affluent Christian areas, in some of the more affluent Sunni neighborhoods, some semblance of normal life. Some of the stores are closed, yes, but people out on the streets, some people going to work. But in the southern suburbs, it's still deserted.

Why are more targets here not struck? Perhaps, quite simply, there are no more on a daily basis that the Israeli Defense Forces can see -- Wolf.

BLITZER: All right, Nic. Nic in Beirut for us.

The Israeli army is reporting heavy casualties in an attempt to take a Hezbollah stronghold claimed to have been captured only yesterday.

Our senior national correspondent, John Roberts, is near the Israeli-Lebanese border for us -- John.

JOHN ROBERTS, CNN SR. NATIONAL CORRESPONDENT: Wolf, Bint Jbeil is the big story here. And as you can see, the Israeli military is preparing to respond to it.

They've brought in reinforcements, these big, heavy Marav (ph) tanks to go across the border and join the fighting. We can't, because of Israeli censorship rules, tell you how many of them there are, but there are quite a few in this staging area.

Troops, as well, preparing to go across the border to do battle. Probably wondering after what happened with the Israeli army there this morning, the elite Golani Brigade, what happened to them at the hands of Hezbollah. Probably wondering what lies ahead for them.

As you mentioned, Wolf, eight soldiers killed. There were also 22 that were wounded. Three of those seriously.

It's very ironic that this happened, because just yesterday General Gal Hirsch told me that the Israeli army had complete control of Bint Jbeil. But here is how an Israeli army spokesman described it to me today.

(BEGIN VIDEO CLIP)

CAPT. MICHAEL PILCER, ISRAELI DEFENSE FORCES: Patrols in the town to make sure that everything is out over there. And we're surprised we found some Hezbollah who were still embedded in some bunkers over there. There was heavy fighting going on, on there.

They came out. There was hand-to-hand, street-to-street fighting between the houses. And in the course of it, we suffered some fatalities, some wounded as well.

(END VIDEO CLIP)

ROBERTS: And today, General Udi Adam, who is the commander of the northern command here in Israel, walked back a little bit from this idea that they had control of Bint Jbeil. He said, "Look, we don't have control of the actual city. What we have is control of the territory."

It was pretty clear from what happened today that they do not have control of the city. They were conducting some mopping-up operations, sweeping out parts of Bint Jbeil when Hezbollah launched a counter-attack, using Sagger anti-tank missiles, improvised explosive devices, the type that we see in use in Iraq. They also used automatic weapons and mortars, and really exacted quite a toll on the Israeli forces.

The fighting was described as close quarters, very fierce, house to house, and sometimes hand to hand. But even as the Israeli army is tied up in Bint Jbeil, we see evidence that they are trying to expand the ground campaign.

On a ridge beyond those tanks we saw a substantial artillery barrage today. It lasted some two hours. Smoke coming up covering the ridge lines, covering the hillsides. You know that there was a Hezbollah target in there that they were trying to soften up so that those ground forces can move beyond Maroun al-Ras, beyond Bint Jbeil, and try to -- try to do what they can to establish that mile-wide security zone that Israel says it's bound to control until an interim international force can come in and secure that area, provide a buffer zone between Hezbollah and Israel.

I have to say, though, Wolf, although they are trying to make progress against Hezbollah, it doesn't seem to be doing much in terms of the number of Katyusha rockets that we see fired into northern Israel. There was almost 120 of those today, which is an indication that Hezbollah still very well dug in, in Southern Lebanon, very effective with those rockets -- Wolf.

BLITZER: John Roberts on the scene for us.

John, thank you.

As the fighting rages, lots of talk but little action from the international community, at least so far. They've been unable to reach a consensus about what to do next.

Our chief national correspondent, John King, is joining us from Rome. He's got the latest from the secretary of state, Condoleezza Rice, who discussed this crisis with European and regional leaders early in the day -- John.

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: Wolf, 18 nations and international organizations in all involved in those discussion. All of the diplomats objecting to the characterization of the Rome summit as a failure. And yet, they left here without what they wanted most, a cease-fire deal to end the fighting.

(BEGIN VIDEOTAPE)

KING (voice over): The mood was described as tense, frustrating. Secretary of State Rice said to be under constant siege, viewed by many at the Rome emergency summit as the obstacle to a cease-fire plan. But she stood firm, insisting any cease-fire that did not demand Hezbollah disarm would be meaningless and would not be accepted by Israel, anyway.

CONDOLEEZZA RICE, SECRETARY OF STATE: Because, unfortunately, this is a region that has had too many broken cease-fires, too many spasms of violence followed then by other spasms of violence.

KING: And so a summit designed to provide hope the hostilities might soon end instead ended with Lebanon's prime minister devastated.

FOUAD SINIORA, LEBANON PRIME MINISTER: The more we delay the cease-fire, the more we are going to witness more are being killed, more destruction, and more aggression against the civilians in Lebanon.

KING: As tensions mounted, sources tell CNN only an impassioned plea from Prime Minister Siniora kept the summit from collapsing. So the participants huddled for an extra 90 minutes, but in the end, no communication or agreement on a plan. Just the statement voicing "... determination to work immediately to reach, with the utmost urgency, a cease-fire that puts an end to the current hostilities."

Privately, some on hand complained the United States was not budging because it wanted to buy Israel more time for military operations.

Publicly, though, a concerted effort to keep diplomacy alive.

BENITO FERRERO-WALDNER, EU EXTERNAL AFFAIRS COMM.: This conference is not a failure. This conference is a very important beginning.

KING: To back up such talk, diplomats pointed to major commitments from Saudi Arabia and others for humanitarian and reconstruction aid to Lebanon, and for some progress on another contentious issue, creating an international peacekeeping force that would step in, if and when there is a cease-fire.

Italy and France volunteered troops, and the European Union agreed to take the lead to organizing the force and presenting a plan to the U.N. Security Council.

FERRERO-WALDNER: We want to give a chance to the Lebanese government to expand its authority with the help of such a stabilization force.

(END VIDEOTAPE)

KING: Now, a top U.S. official on hand from the summit described overcoming the obstacles as like solving a Rubik's Cube. Sometimes the timing can matter as much as the substance. And while Secretary Rice quickly left Rome for a previously scheduled trip to Asia, Wolf, expect her back in the Middle East as early as this weekend trying to resolve some of the very difficult issues that prevented a deal on a cease-fire here in Rome -- Wolf.

BLITZER: I assume if she comes back to Middle East she'll stop off here in Jerusalem, where I am right now, John. Is there an indication that she will get involved in some intensive shuttle diplomacy?

KING: The State Department is not releasing her schedule, simply saying she will come back to the region if she can help. But certainly there are things discussed here that she needs to discussed with the Israelis. We expect that would be her first stop. She went to Beirut last time. Worth watching to see if she stops at moderate Arab ally nations as well this time -- Wolf.

BLITZER: John, thanks very much.

John King reporting for us from Rome.

Meanwhile, there are new casualties on the other front of the current conflict. That would be in Gaza. Palestinian sources say two dozen Palestinians are dead in clashes and airstrikes, including militants and a mother and her two children.

Palestinian medical sources say at least 11 people were killed in Israeli attacks on Gaza City. The sources say seven of the dead were from Hamas or Islamic Jihad. The Israeli military says its air force was targeting militant cells, some armed with anti-tank missiles.

Let's check back with Jack Cafferty once again in New York -- Jack.

JACK CAFFERTY, CNN ANCHOR: All right. Thanks, Wolf.

On a different topic, last month you may recall the Supreme Court of the United States told the Bush administration that using military tribunals to try suspected terrorists is illegal, it won't fly. Well, now his attorney general, Alberto Gonzales, is trying to come up with some acceptable legislation that would allow for those tribunals, along with some other thing that the courts might take issue with.

For example, they've drafted a proposal that would allow indefinite detention of suspected terrorists. They're considering a system that would allow what they call reliable hearsay evidence in the trials when prosecuting terror suspects. And defendants might be barred from attending their own trials if it's deemed necessary to protect national security.

The legislation would also declare that a provision of the Geneva Conventions would not apply to the detainees. Once again, the Supreme Court ruled last month that the Geneva Conventions do apply.

So here's the question: How should the Bush administration proceed when it comes to terror suspects?

E-mail your thoughts to CaffertyFile@CNN.com or go to CNN.com/CaffertyFile.

Back to the drawing board for the administration, Wolf, as they try to come up with a set of rules that will pass muster with the courts.

BLITZER: Jack, thank you.

Jack Cafferty in New York.

Up ahead, controversy swirling as Iraq's prime minister addresses a joint meeting of the Congress. We'll have details of what he said, including a grim prediction if the U.S. mission in Iraq should fail. Also, Tel Aviv residents worry they may be the next target of Hezbollah rockets. We're going to take you to Tel Aviv to hear what people on the streets of Israel's largest city are saying.

Plus, my special interview with a top Israeli air force commander. He'll give us an inside look at the conflict from Israel's perspective.

There's other important news, though, we're watching as well, including a stunning vow. Iraq will repay the world for all of its help by becoming the graveyard for terrorists. That vow coming from the Iraqi prime minister, Nuri al-Maliki.

Today he addressed a joint meeting of the U.S. Congress. Al- Maliki said Iraq's past was filled with mass graves and torture chambers, but its future is bright with human rights and the rule of law. He also discussed what's at stake if terrorists are not defeated.

(BEGIN VIDEO CLIP)

NURI AL-MALIKI, IRAQI PRIME MINISTER (through translator): Do not think that this is an Iraqi problem. This terrorist front is a threat to every free country in the world and their citizens. What is at stake is nothing less than our freedom and liberty.

Confronting and dealing with this challenge is the responsibility of every liberal democracy that values its freedom. Iraq is the battle that will determine the war.

(END VIDEO CLIP)

BLITZER: The prime minister's speech was briefly interrupted by a war protester after she shouted for U.S. troops to come home. Guards escorted her from the gallery.

While the Iraqi prime minister visits Washington, the violence in Iraq rages on. And today, the U.S. national security adviser said much of it is due to what he calls murderous death squads and armed gangs.

Let's get some more from our senior correspondent, Jamie McIntyre -- Jamie.

JAMIE MCINTYRE, CNN SR. PENTAGON CORRESPONDENT: Wolf, it's not only a debate about what's going on in Iraq, there's also a debate about what you call it.

(BEGIN VIDEOTAPE) MCINTYRE (voice over): All-out civil war is seen by many as the worst case scenario for Iraq. So, if like White House spokesman Tony Snow your job is to put the best face on the war, it's not a phrase in your lexicon.

TONY SNOW, WHITE HOUSE PRESS SECRETARY: I'm not going to get into the labeling game. I think the most important -- because I don't know where you go with that, except you get a headline. "Administration Says Civil War."

MCINTYRE: But with violence on the rise, especially in Baghdad, the U.S. does admit that sectarian or religious warfare has eclipsed the al Qaeda-backed insurgency as the biggest threat to Iraq security. But instead of citing increasing warfare between Sunni and Shia militia, the military now refers to the enemy as members of death squads, which gives the impression of smaller criminal gangs.

COL. DOUGLAS MACGREGOR, U.S. ARMY (RET.): If you say "death squad," people remember Latin America. They think of a few people assassinating a limited number of their countrymen. This is -- it's a wonderful term if you're trying to divert attention from the fundamental problem on the ground.

MCINTYRE: Military spokespeople in Baghdad say the warring factions are in fact operating more like the Mafia than revolutionaries.

MAJ. GEN. WILLIAM CALDWELL, MULTINATIONAL FORCE, IRAQ: When we say "death squads," what we're referring to is anybody who is operating outside of the law. Any illegal element that is out and potentially using murder and killings to further their personal goals.

MCINTYRE: Press releases from Iraq, like this one just issued, now routinely refer to capturing or killing members of death squads.

(END VIDEOTAPE)

MCINTYRE: What's not said is that the kidnappings and murders are part of a cycle of attacks and reprisal attacks between Sunni and Shia militia, sometimes operating within the Iraqi security forces themselves -- Wolf.

BLITZER: Jamie, thank you.

Coming up, four United Nations observers killed in an Israeli airstrike despite repeated pleas to hold fire. How exactly did it happen? We're going to show you what experts are saying might have gone wrong.

Plus, I'll speak to a top Israeli air force commander about his country's mission.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK) BLITZER: We're learning new details tonight of that Israeli airstrike that killed four United Nations military observes in Southern Lebanon. Still the question remains, how did it happen even after repeated warnings?

CNN's Brian Todd is joining us now live from Washington with the latest -- Brian.

BRIAN TODD, CNN CORRESPONDENT: Wolf, with U.N. Secretary-General Kofi Annan calling it an apparently deliberate targeting of the U.N. post, and the Israelis emphatically denying that, we undertook a tactical breakdown of how this might have played out. Timelines and official accounts suggest at the very least some kind of disconnect.

(BEGIN VIDEOTAPE)

TODD (voice over): U.N. officials say despite repeated calls to Israeli officers and assurances the attacks would stop, the U.N. outpost near Khiyam was under constant stress on Tuesday.

CAPT. RONON CORCRONN, U.N. OBSERVER: There were a series of firings on position that was eventually hit.

TODD: An Israeli general offers one explanation of why the Israelis might have continued to strike that area, even as they were being alerted, according to U.N. officials, by the outpost observers.

GEN. MICHAEL HERZOG, ISRAELI DEFENSE FORCES: Hezbollah has traditionally positioned themselves very close to U.N. positions. That is in order to enjoy impunity.

TODD: The Israeli military says Hezbollah has been launching missile attacks against Israel from the Khiyam area, but a U.N. official says no Hezbollah firing was coming from the immediate vicinity of the post.

Lebanese security sources tell CNN the post was hit with precision-guided bombs. CNN military analyst General Don Shepperd, a veteran combat pilot, says those munitions can be satellite-assisted or laser-guided. With satellites, he says, it's possible the wrong coordinates could have been entered.

With lasers...

MAJ. GEN. DON SHEPPERD (RET.), CNN MILITARY ANALYST: Brian, there's three ways of dropping a laser bomb on a target. The first way is with a ground observer.

For instance, this special forces troop firing a laser at the target. An aircraft sees the laser, he drops a laser-guided bomb. It them homes in on reflected laser energy to get the target.

The second way is what we call self-lasing (ph). The pilot in the aircraft fires his own laser, drops his own bomb, it then homes in on the target. The third way we call buddy-lasing. One pilot designates the target with the laser, the second aircraft drops the bomb. It homes in on the target.

All three of these can go wrong if the person designating is looking at the wrong target. And that can happen with smoke in the area or other types of confusion, miscommunication.

(END VIDEOTAPE)

TODD: One other possibility, according to U.S. and Israeli military experts, those distress calls from the U.N. observers to Israeli officers might not have reached Israeli commanders or their pilots in time. And the Israelis acknowledged they have made mistakes in this campaign.

The Tel Aviv-based "Haaretz" newspaper reports the downing of an Israeli helicopter earlier this week may have been from friendly fire. That according to Israeli air force officers -- Wolf.

BLITZER: Brian, thanks very much.

Brian Todd in Washington with that report.

And coming up, more on the deepening crisis here in the Middle East. Today the Lebanese city of Tyre took a heavy pounding. An airstrike even flattening a 10-story building.

We're going to have a live report of the aftermath.

And now that Hezbollah is threatening to strike deeper into Israel, how worried is Israel's major population center? That would be Tel Aviv. I went there earlier today.

We'll tell you what's going on.

Stay with us.

(COMMERCIAL BREAK)

BLITZER: Just a little while ago I was in Tel Aviv at the Israeli military headquarters and I spoke with a top Israeli military officer, a member of the general staff, to get some unique insight into what's going on in this conflict between Israel and Hezbollah. The Israeli air force Brigadier General Ido Nehushtan, he's a key commander.

(BEGIN VIDEOTAPE)

BLITZER: Is there any way of predicting how long this could last?

BRIG. GEN. IDO NEHUSHTAN, ISRAEL DEFENSE FORCES: I can tell you, I don't think it's a matter of days, because we are fighting against -- actually, on the ground forces, on the ground theater, it's alongside the border. I tried (ph) to change the reality. Actually, the Hezbollah is no longer on the border right next to us, but we are first fighting and pushing them, and they're clearing some of their strongholds.

BLITZER: So you're talking weeks?

NEHUSHTAN: Well, I would say -- I couldn't tell. Of course it's not only for the military to decide. It's (INAUDIBLE). But, from a military point of view, it's not a matter of days.

BLITZER: And they were -- they have been pretty heavily armed by Syria and Iran. On that you have no doubt?

NEHUSHTAN: All I can tell you, that the fingerprints of both Iran and Syria are very clear. (INAUDIBLE) that they have launched against us, a warship, this is a technology, this is a weapon, training and know-how that comes from a nation, absolutely. And the weapons, actually, the missiles that are falling over Haifa, and all the southern cities in the northern valley, they're Syrian-made. It's a big missile, and also Iranian-made, some missiles, as well.

BLITZER: Last night, the leader of Hezbollah, Hassan Nasrallah, said they have some other surprises ready for you, ready for Israel, including rockets, maybe missiles, that could go further south than Haifa right now. Based on everything you know -- and you're one of the top Israeli strategic planners -- how far can they hit Israel with their rockets?

NEHUSHTAN: I wouldn't say a number, but they might have...

(CROSSTALK)

BLITZER: Can they hit where we are right now in Tel Aviv?

NEHUSHTAN: I wouldn't say a number.

But I'm sure that they -- you know that they might have some longer-range missile. For example, 10 days ago, I think, we targeted some of their longer-range missile that were in Lebanon, and it apparently showed up on TV, you know, the longer-range, larger missile that blew up and -- and -- and went down...

(CROSSTALK)

BLITZER: If that missile...

NEHUSHTAN: ... near Beirut.

BLITZER: If that missile...

NEHUSHTAN: This is...

BLITZER: ... had been successfully launched, it could have hit where we are right now?

NEHUSHTAN: Well, for the better -- for the best that we know, it's around 120 to 150 kilometers. (CROSSTALK)

BLITZER: So, it could have been here?

NEHUSHTAN: It depends on where you launch it from.

BLITZER: If it would have been launched from south Lebanon?

NEHUSHTAN: Maybe. They might. I don't know. But, well, we know that they have longer-range -- so far, the longer -- the longest thing that they have launched is 45 kilometers. We know that they have other arrays.

BLITZER: So, the bottom line is, he might still have some surprises, Nasrallah, and you have to be prepared for the worst-case contingency?

NEHUSHTAN: Well, we are prepared for the entire array of missiles and rockets that he has.

We are prepared. And we are willing and ready to fight it, as best as we can. So, this is I wouldn't say a surprise. We know that they have a very diverse array of missiles.

BLITZER: You know the Israeli military right now coming under some extraordinary criticism from the United Nations, Secretary- General Kofi Annan. He says that you, apparently, deliberately targeted members of the U.N. observer force in south Lebanon. They had been in that position for a long time. You knew where that position was. They had alerted you.

And he says that, apparently, it was a deliberate attack.

NEHUSHTAN: Well, absolutely not.

I think it's very clear and almost obvious to say that we would never deliberately attack any U.N. forces. Why should we? Of course, they're United Nations forces.

From initial investigation, they might be hit, mistakenly, of course, by -- by an -- by an airstrike that happened in the same area, but never, never deliberately, absolutely not.

Israel bombed the Lebanese city of Tyre today, looking for Hezbollah targets.

Let's get some details of the aftermath of what happened in that southern Lebanese city.

CNN's Karl Penhaul joining us now live -- Karl. KARL PENHAUL, CNN CORRESPONDENT: This was about the first strike in a week that I have seen in the downtown area of Tyre. Most of the other bombardments had been concentrated on edges of the eastern and the southern suburbs, Wolf.

But this one was about a half-a-mile this way. We heard just before nightfall the crack of two Israeli rockets going into an apartment building in downtown Tyre. And, within minutes, we were on the scene there.

We saw civilian victims, women and all the men, being dragged from wreckage or from nearby buildings, blood streaming from their faces, and also covered in cement dust. They were being put in Red Cross ambulances and taken away.

And, then, the building itself that had been targeted, residents there told us that it had -- it was a 10-story building. And it was absolutely flat. Where homes once were, all were left there was fire and rubble -- Wolf.

BLITZER: Karl, is this about as bad as it has been since you have gotten there to Southern Lebanon?

PENHAUL: Depends where you are, and at what time of day, and such like.

I have been here now for eight days, since I got down here to Tyre. Each day is different. As I say, two days before we arrived here, an apartment blocking the downtown area had been targeted. We're told that 22 people died in that attack.

And, since then, most of the attacks have been concentrated on the eastern and southern edges, and also in the villages. And, there, we have seen plenty of civilians coming into the local hospitals with terrible shrapnel wounds, being treated in hospitals that are overloaded, that are running short of supplies. Every day does bring a new surprise. And, usually, those surprises are bad surprises -- Wolf.

BLITZER: Our veteran war correspondent Karl Penhaul in Tyre -- what a day there today.

Thanks very much, Karl, for that.

Here in Jerusalem is CNN's chief international correspondent, Christiane Amanpour.

Let's get back to that incident we spoke about yesterday. We have been reporting on the fallout from the killing of those four U.N. military observers. How do you see this playing out, Christiane?

CHRISTIANE AMANPOUR, CNN CHIEF INTERNATIONAL CORRESPONDENT: Well, I have been told by U.N. sources, as you have been reporting, that it was a precision-guided bomb, that they had made 10 phone calls to the IDF, who had said: Yes, yes, we are going to going to stop it anyway. It didn't stop. But the impact they are concerned about at the U.N. is, as they try to convince these countries to, you know, deliver some kind of international force, what it is going to mean if there are these risks of being attacked, one way or -- or another by one side or another?

So, they're worried about that. They say that any kind of U.N. operation -- and the current one happening on the ground is the humanitarian operation -- must have strict, strict -- working in tandem with the IDF. There must be real rules, real guidelines, real knowledge of when convoys are going to be there, and telling the IDF and all of that.

They're just concerned that it may have a chilling impact on those countries who might be motivated to -- to deliver troops.

BLITZER: And one of the wild cards in all of this, at least according to Israeli officials, they point out that, let's say the Israelis cooperate with the U.N. -- and Jan Egeland was just here, the U.N. human -- humanitarian relief expert -- and they work out these corridors to bring badly-needed supplies to the people of Lebanon.

The fear is, Hezbollah themselves might take advantage and try to get themselves close to those corridors to launch rockets, knowing the Israelis are not going to respond.

AMANPOUR: Well, you know, we went through this in Bosnia.

There was always those kind of suspicions raised by the Serbs in Bosnia, when the U.N. had to deliver vitally needed supplies to the Bosnians in Sarajevo and elsewhere. You know, obviously, that's potentially a concern. But it would be hard to see how -- and, you know, how that would actually pan out and whether that actually would happen.

But, clearly, there would have to be strict -- you know, the U.N. is very cognizant of that, and would have to have strict sort of monitoring of its own convoys and the like.

BLITZER: Are you surprised that the government of France today and the government of Italy today, they expressed a strong inclination to participate in this new United Nations-sanctioned peacekeeping force in Lebanon? They're willing to dispatch troops.

AMANPOUR: Well, I'm not surprised. And I think it's good news.

The more European and other sort of countries that can deliver troops, the better, particularly perhaps some of those who are acceptable in the region, like Turkey and others, some non-E.U. troops as well. France has a history of peacekeeping, as you know.

(CROSSTALK)

BLITZER: And a history with Lebanon, too.

AMANPOUR: Exactly, and particularly with the Cedar Revolution. And Italy hosted the conference, and, obviously, you know, would like to do something as part of that whole effort, and also has a history of peacekeeping. It was -- and other interventions. It has been all over in the Balkans. It was in Iraq and elsewhere.

But there more countries that can, and the sooner, the better, because I'm beginning to pick up sort of a vicious cycle. The U.N. says, well, it can't put the troops in -- it's not U.N., but it might be U.N.-sanctioned -- until there is a cease-fire.

And from what the Israelis have been telling us on the front, they can't have a cease-fire and stop what they're doing until there's an interposition force. So, it's going to be interesting to see the sequencing, as that work gets on.

But I did hear the foreign secretary of Great Britain say that they would probably be in the Security Council early this coming week to talk about this force.

BLITZER: We will see what she can do.

A lot of a women, a lot of foreign secretaries, foreign ministers, Secretary of the State Condoleezza Rice, Margaret Beckett in Britain -- so, there's -- here in Israel, Foreign Minister Tzipi Livni.

AMANPOUR: And journalists as well.

BLITZER: Women are taking over.

AMANPOUR: That's right.

BLITZER: Let's see what they can do.

Thanks very much, Christiane. You are going to be with us at 7:00 Eastern tonight for more.

We will continue this conversation with Christiane, 7:00 p.m. Eastern.

Still to come: Tel Aviv residents on edge, as Hezbollah hints it has rockets that can hit them. We drove down to Tel Aviv to talk to people there, get their sense of what's on their mind.

Plus, the fighting is stretching the divide between Sunni and Shiite Muslims. Our Internet reporters will show you the situation online.

We will be right back.

(COMMERCIAL BREAK)

BLITZER: While rockets rain down on northern Israel, residents of Tel Aviv are wondering if they might Hezbollah's next target. We went there ourselves to get a sense of the mood.

(BEGIN VIDEOTAPE)

BLITZER (voice-over): The drive from Jerusalem down to Tel Aviv is majestic, and only about an hour.

(on camera): It's going to be pretty flat from now, as we head toward the Mediterranean and Israel's largest city, a city that's nervous right now, as threats emerge from the leader of Hezbollah, Hassan Nasrallah, that they have rockets, they have missiles, potentially, that can go further south than Haifa.

And a lot of people in Tel Aviv are beginning to wonder whether they could reach the commercial capital of Israel. And we are on the way there to find out what is going on in Tel Aviv.

(voice-over): On the surface, the city looks the same. Traffic is intense, just like any major city in the world.

We stop by Israel's military headquarters for a background briefing with a senior military officer -- no cameras allowed inside of the building, but, outside, you could feel a country at war.

(on camera): I think it's fair to say that where I'm standing right now would be ground zero, as far as Israel's enemies are concerned. They would like nothing better to launch a rocket or a missile that would hit this spot right here, the headquarters of the Israel Defense Forces, the IDF.

I remember, going back to 1991, when Scud missiles from Iraq were landing in Tel Aviv, Ramat Gan, not very far away, and this whole area. Clearly, they were targeting the headquarters of the Israeli military. That would have been a huge, huge bonanza for Saddam Hussein.

Similarly, if Hezbollah in the north has that capability to hit this spot, that would be a significant, significant bonanza for Hezbollah. As a result, security at this location, understandably, is quite intense.

(voice-over): Not far away, it's mostly business as usual at the beaches of Tel Aviv, even though the government's threat level is higher. And the shops and coffee houses are certainly open for business. But, for many residents of this city, life has suddenly become more complicated as a result of the latest threats from Hezbollah.

UNIDENTIFIED FEMALE: We're very, very afraid, very scared of that -- of our kids. What -- what can we say?

BLITZER (on camera): So, what are you going to do? Are you going to stay here in Tel Aviv?

UNIDENTIFIED FEMALE: We're going to -- we're going to stay here. We don't have a choice.

BLITZER: But you take that threat seriously?

UNIDENTIFIED FEMALE: I do.

BLITZER: I'm speaking to people in Tel Aviv, asking them if they're worried about that threat.

UNIDENTIFIED FEMALE: Of course we are worried. Of course.

BLITZER: Does life go on for you? How...

UNIDENTIFIED FEMALE: Yes.

BLITZER: What do you...

(CROSSTALK)

UNIDENTIFIED FEMALE: ... to go on.

BLITZER: Well, what are you going to do about it?

UNIDENTIFIED FEMALE: Nothing.

(LAUGHTER)

UNIDENTIFIED FEMALE: What can we do?

BLITZER: You're going to stay here?

UNIDENTIFIED FEMALE: Yes, of course.

BLITZER: And just go...

(CROSSTALK)

UNIDENTIFIED FEMALE: Where can I go? I don't have anywhere to go to.

(END VIDEOTAPE)

BLITZER: And all the people we spoke to, virtually every single one, said they're going to stay in Tel Aviv. They're not going anywhere. They're going to wait and see what happens next.

Most countries, by the way, including the United States, keep their embassies in Tel Aviv, even though Israel declared Jerusalem as its capital back in 1950.

A crucial debate on the current crisis in the Middle East is emerging online. What are Muslims around the world saying about Hezbollah's latest actions? You may be surprised.

For some context, let's bring in our Internet reporter, Jacki Schechner, once again -- Jacki.

But some extremist Sunni-based boards, many password-protected and known for carrying political messages, are silent on the current crisis.

FARAJ: We haven't seen any statement so far coming from the Islamic groups, the leaders, especially al Qaeda, whether they're pro or against Hezbollah.

SCHECHNER: That may be, in part, because al Qaeda is Sunni- based.

Here, you can find posts supporting Sunni-based Hamas, but not Shiite Hezbollah. One post calls Sunnis "lions" and Shiites "donkeys."

Israel may be their common enemy, but many Sunni sites make no mention of the conflict in the Middle East, omissions that speak volumes.

(END VIDEOTAPE)

SCHECHNER: Now, as with any anonymous Internet message board, there is no way we can verify the authenticity of each entry.

But our translators at CNN's bureau in Dubai continue to monitor these sites and post stories at CNN.com's Arabic-language site. Also, we're going to continue to keep you posted on the role the Internet is playing in the Mideast crisis. You can go to CNN.com/SITUATIONREPORT -- Wolf.

BLITZER: Jacki, thank you for that.

Lou Dobbs getting ready for his program. That begins right at the top of the hour. He's standing by to tell us what he's working on -- Lou.

LOU DOBBS, CNN ANCHOR: Wolf, thank you. Coming up at 6:00 p.m. here on CNN, we will be reporting on Israel's increasingly difficult and deadly struggle to defeat Hezbollah in Lebanon -- the Israeli army today suffering the worst casualties since the conflict started.

We will have complete coverage for you from Lebanon, from Israel. Also tonight, the U.S. military changing its strategy and tactics in Iraq, trying to prevent an all-out civil war. Will these new tactics and strategies work?

My guest tonight, a critic of the conduct of this war, he is Thomas Ricks, "The Washington Post" Pentagon correspondent and the author of the critically important new book "Fiasco: The American Military Adventure in Iraq."

And outrage tonight in Congress over United Nations proposals to tax Americans. Lawmakers say those proposals threaten our sovereignty, our prosperity. Two leading opponents of that plan, Senator James Inhofe and Senator Ben Nelson, join us here tonight.

And we will continue our series of reports on the threat to democracy through e-voting machines.

We hope you will be with us for all of that and a great deal more at the top of the hour -- Wolf, back to you in Jerusalem.

BLITZER: Thanks very much, Lou, for that.

And, just ahead, Jack Cafferty is talking about the path of the Bush administration and the plight of terror suspects. How should the situation proceed? Jack, with your e-mail, that's coming up.

And, in our 7:00 p.m. Eastern hour: The Lebanese accuse Israel of using bombs laced with phosphorus, causing severe burns to civilians. Israel says Hezbollah is using rockets filled with ball bearings. Our Mary Snow will take a closer look at the weapons of war.

Stay with us.

(COMMERCIAL BREAK)

BLITZER: Big questions and elusive answers here in the Middle East.

Our senior analyst, Jeff Greenfield, tells us why the current clash between Israel and Hezbollah is more challenging than past conflicts -- Jeff.

(BEGIN VIDEOTAPE)

JEFF GREENFIELD, CNN SENIOR ANALYST: Wolf, if you don't think the news from the Middle East is bad enough, try this notion on for size. It makes some of the most contentious disputes of the past look almost simple by comparison. Why? Because this one raises the most fundamental set of questions anyone can imagine. For instance:

(voice-over): Think back to the spasm of violence, the second intifada that followed the failed efforts by President Clinton in late 2000 to broker a real lasting solution to the Israeli-Palestinian debate. It was bloody, disruptive, but at least the Palestinian leaders and Israel had recognized each other years earlier.

And the disputes, about borders, the status of Jerusalem, the right of return vs. compensation, were plausibly negotiable. There was at least the possibility of compromise.

Today, Israel faces Hezbollah, an organization that is clearly, unambiguously committed to the eradication of a Jewish state in the Middle East. How do you split the difference on that issue?

Hezbollah's most powerful supporter, Iran, has a president who, despite some debate over the exact language, seems committed to that same idea. How do the traditional tools of negotiation and consultation work if that is the view of one sovereign nation toward another?

Now look at the actions of Israel. If, in fact, Hezbollah launches its rockets from crowded civilian neighborhoods, what level of response is proportionate? Does it matter if those civilians actively support Hezbollah or are involuntary hostages? Can you level whole communities knowing that, inevitably, non-combatants will die? How many is too many?

But there are even bigger, more fundamental questions that this crisis raises.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: That's why these children are practicing to duck and cover.

(END VIDEO CLIP)

GREENFIELD: In the Cold War era, there was at least reason to think that neither the United States, nor the Soviet Union wanted to see millions of their own citizens killed.

But, if you hold the view that martyrdom against the enemy is your key to paradise, how do the normal rules of diplomacy and negotiation and deterrence apply?

Or, if you believe that one of the key players, Iran in this case, is on the way to acquiring nuclear weapons, look at the questions you have to answer: Is a nuclear Iran acceptable? If not, do you pursue a military option to remove that threat? If so, what are the likely consequences? Can you, should you work toward removing that regime? If so, how? And at what cost?

(on camera): It's enough to make you long for those days of the Cold War or the regional clashes of a few years ago, that seemed so dangerous, and now seem almost quaintly simple -- Wolf.

(END VIDEOTAPE)

BLITZER: Jeff, thank you very much for that.

Just ahead, more of our complete coverage of the Middle East crisis.

But, first, Zain Verjee is in THE SITUATION ROOM, back in Washington, with a closer look at some other important stories making news -- Zain.

ZAIN VERJEE, CNN CORRESPONDENT: Wolf, just shoot me, in so many words, that's what former Iraqi President Saddam Hussein told a Baghdad court today. A thinner Saddam appeared before the court, after being hospitalized for refusing to eat. It was his final appearance before the court until it reaches a verdict. The deposed leader told the panel he would rather die by firing squad than be hung, in his words, like a common criminal.

Former President Gerald Ford is now out of hospital and back at his vacation home near Vail in Colorado. He spent two days in the facility being treated for shortness of breath. Earlier this year, Ford spent 12 days in hospital for the treatment of pneumonia.

There's no relief in coming weeks from high gas prices. Now, that's according to the government's Energy Information Administration. It says prices are likely to hover around $3 a gallon for the rest of the summer -- Wolf.

BLITZER: Zain, thanks very much.

Up next: much more of our coverage. Jack Cafferty asks how the Bush administration should proceed when it comes to terror suspects. He's standing by with "The Cafferty File."

We will be right back.

(COMMERCIAL BREAK)

BLITZER: Let's check back with Jack in New York -- Jack.

JACK CAFFERTY, CNN ANCHOR: The Bush administration, Wolf, is pursuing new legislation to authorize the same military tribunals that the Supreme Court said last month are illegal.

So, the question we asked is: How should the administration proceed when it comes to dealing with terror suspects?

Anita writes in San Diego: "How about legally, ethically, and morally? How about as a model of the very behaviors that we are supposedly trying to export?"

Mike in Virginia: "Jack, these detainees should have been killed after being interrogated. People fail to understand these are guys are terrorists, not bank robbery suspects. And they shouldn't be treated like criminals. They are much more dangerous."

Bruno writes: "Cafferty, it's war, and those detainees wage war against this country. What do you suggest, let them go free, so they can do more damage?"

Miriam writes: "The Bush government should follow the law, not try to make up garbage rules that violate rights. Allowing hearsay and banning the accused from attending their own trials? I think even the Salem witches were allowed to face their accusers in court."

Barbara writes from Potomac Falls, Virginia: "Jack, I have never written to you before, but something just snapped in me. If Gonzales and the frat boy get away with this crap, it's time to move. And I mean it's time for us, the great unwashed, to storm the capital and take democracy back. Put them all in Gitmo, try them in absentia, declare them guilty, torture them by making them work for illegal immigrant wages, and let FEMA find them housing while they toil in the fields. We could play old recordings of Bush, Cheney, Rumsfeld, et cetera, saying how great everything is. In other words, we just trade places."

If you didn't see your e-mail here, go to CNN.com/CaffertyFile. You can read more of these online -- Wolf.

BLITZER: Jack, thanks very much.

See you back here in THE SITUATION ROOM one hour from now, 7:00 p.m. Eastern.

Let's go to Lou in New York -- Lou.

DOBBS: Wolf, thank you very much.

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